Question

Frosty Inc. has the following balances on December 31 prior to closing entries: Revenues $ 40,700 Retained Earnings, Jan. 1 9,500 Cash 8,100 Expenses 24,100 Accounts Payable 2,100 Dividends 1,800 Supplies 18,300 Based upon the balances above, what net adjustment would be made to Retained Earnings due to closing entries?

Answer 1

Answer:

The Retained Earnings will increase by $14,800 as follows

$9,500 + $14,800 = $24,300

Explanation:

The question is to compute the net adjustment that Frosty Inc will make to Retained earnings due to the closing entries.

This is calculated as follows

The Revenue of frosty = $40,700 and from this figure we need to subtract expenses that are related to the current period. A positive difference will automatically mean an increase in retained earnings (this becomes profit) while a negative figure will mean a decrease in the Retained earnings (a loss)

Ending figure/Balance in the Income Statement = Revenue - Expenses - Dividends

(Kindly note that other figures; cash, accounts payable and supplies are balance sheet items and not income statement related)

Ending Balance = $40,700 - $24,100- $1,800

= $14,800 (positive or profit)

Therefore, the Retained Earnings will increase by $14,800 as follows: $9,500 + $14,800

= $24,300